Glut of rooms from Portland hotel construction boom could be ‘very difficult’ for market

The site of the future Hyatt Place Portland, now a Central Maine Power Co. storage lot at the corner of Fore and Union streets, seen from the neighboring Fore Street parking garage. The property is across from Two Portland Square and the Portland Harbor Hotel.

PORTLAND, Maine — Work begins this week on construction of a 123-room hotel at Fore and Union streets, signaling the start of a new round of competition in the city’s red-hot hotel market.

How hot is it?

If all goes as developers hope, the hotel construction boom will bring the city’s total number of guest rooms to 2,359 — more than the number in Providence, R.I., which has a population nearly three times that of Portland.

Developer East Brown Cow was scheduled to break ground on the seven-story Hyatt Place hotel Wednesday at a ceremony attended by Mayor Michael Brennan and Director of Economic Development Greg Mitchell.

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As part of the $14 million project, a section of Fore Street between Dana and Union streets will become one-way, accepting westbound traffic only, until the hotel’s expected completion in May 2014. In addition, about 10 parking spaces on Union Street, north of Fore Street, will be eliminated.

When the Hyatt Place opens its doors, it will join three other downtown hotels expected to do the same by early next year.

They include a 131-room, six-story Courtyard by Marriott at 321 Commercial St., and a 110-room boutique hotel in the former headquarters of The Portland Press Herald at 389 Congress St. Both projects received approval from the Planning Board on Jan. 22, and are now seeking final permissions to move forward.

And on High Street at Congress Square, the historic Eastland Park Hotel, which has been shuttered and undergoing a $35 million renovation since last summer, is scheduled to reopen in December as the Westin Portland Harborview Hotel. The new hotel will have 289 rooms, 58 more than the Eastland.

In addition, plans call for a 125-room hotel to be built as part of the $105 million mixed-used development proposed for Thompson’s Point.

There are about 3,500 rooms in the Portland metro area, according to the Maine Innkeepers Association.

Those numbers worry the association’s executive director, Greg Dugal.

“Portland is going to have its work cut out for it in filling those rooms,” Dugal said. “This is a substantial jump, there’s no question.”

While there’s plenty of business for local hotels during the summer tourist season, the off-season is expected to be the true test of whether the city can support the increase in capacity.

“I think the number of new rooms could probably be absorbed by the summertime market, but the process will really manifest itself during the off-season, when hotels are struggling for every guest they can get,” Dugal said.

Last year was a good one for local hotels.

The average occupancy rate in the Portland area was 59.3 percent in 2012, according to Smith Travel Research. That’s about the same as the occupancy rate for the past 10 years, except for 2009, when the recession and bad weather devastated Maine tourism. And the rate is close to the 60 percent threshold hotels typically seek when considering new capacity, Dugal said.

What’s more, he said, the average room rate was $109, up from $101 the year before.

But those results also reflect the temporary closure of the Eastland, Portland’s largest hotel. And the addition of more than 650 new rooms, all within a few months of each other, could be too much to swallow.

“My guess is that there will be a glitch in occupancy and rate,” Dugal said. While the new hotels will likely do well because of their novelty, the potential glut of rooms could hit older hotels and those off the peninsula especially hard.

Properties in South Portland could “bear the brunt” of the boom, he said.

But across the street from the future Hyatt Place, the Portland Harbor Hotel’s general manager, Gerard Kiladjian, is also worried.

“If you look at the new inventory [of rooms], it’s foolish to say we’re not all going to be affected,” he said.

The new inventory will be more difficult for the local hotel market to absorb than other recent additions, which were more gradual, Kiladjian added.

The 122-room Hampton Inn opened in 2011 at Fore and Franklin streets, and the 179-room Residence Inn by Marriott opened at Fore and Hancock streets in 2009. Prior to that, the city had not seen a new hotel since the 2003 opening of the Hilton Garden Inn on Commercial Street, with 120 rooms, and Kiladjian’s 101-room hotel in 2002.

“It just happens that every one of these [current] projects is coming to the table at the same time,” he said. “That would be very difficult for any market to absorb, no matter how strong. There will be some winners and some losers.”

But despite its proximity to the Hyatt Place, the Portland Harbor Hotel won’t be changing its business strategy in response to the new kid on the block, Kiladjian said.

“We will continue doing what we do best, and investing in the property,” he said. He noted that the Portland Harbor Hotel is a luxury brand that caters to a different clientele than the Hyatt Place, part of a midprice chain geared more to business travelers.

Ultimately, it’s impossible to predict exactly how the local hotel market will shake out, Dugal said, but Portland’s popularity with visitors should allow it to sustain the current growth after a year or two of adjustment.

“It’s just going to be a little extra work,” he said, “but it can be done.”